Secure Transactions Flashcards
What should be the first sentence of any secured transaction answer?
Article 9 of the UCC governs any transaction regardless of its form that creates a security interest. This includes security interests in both tangible and intangible property.
What are the three things that must happen for a security interest to attach?
1) Creditor must give debtor value (service, cash, loan, forbearance on preexiting debt, or access to a line of credit) “Value was given”
2) Debtor must have rights in the collateral (ownership or power to transfer rights in the collateral)
3) Security Agreement or possession/control of collateral – agree to grant the secured party a security interest by
- creditor taking possession of collateral
- authenticated security agreement
- creditor taking control of consumer deposit accounts
What two features does a creditor need to feel secure in their interest?
Attachment
Perfection
Definition of Attachment
The security interet is made effective, usually by the loan agreement and makes the security interest in the collateral effective against the debtor
Security Agreement Requirements
1) written and shows intent to create a security interest
2) authenticated by debtor (signed or marked)
3) describe collateral
Does order of the 3 attachment requirements matter?
Nope just all three have to be completed to attach
Tangible collateral types under Article 9
consumer goods - personal use
equipment - goods used by a business but not sold
inventory – goods held for sale by a business
farm products – unique to farming ops (animals, feed, seeds)
fixtures – something attached to a building in a permanent way that is considered part of the real property
computer software
Intangible Collateral
1) accounts receivable – think unpaid invoices
2) chattel paper (movable property)
Deposit accounts – checking/savings account
investment property – stocks and bonds
Sufficient description of collateral in a Security Agreement
It must reasonably identify what is described such that it is objectively and reasonably determinable
VIN numbers and legal descriptions are not required
Is “all assets” a sufficient description?
No
Do electronic signatures, fingerprints, intitials, etc work for authentication?
Yes they do
Possession of tangible objects
Possession is of tangible objects and includes things like holding collateral like at a pawn shop.
It proves your intent to encumber the property.
What are the alternatives to security agreement?
Possession and control
Control (security agreement alternative)
Involves control of intangible objects and is done by giving legal control over it and being able to withdraw from it
Banks do it by having the account in their bank, putting the name of the creditor on the account
After Acquired property clauses
You can add an “after-acquired” property clause in the security agreement to have an interest in inventory or assets acquired after signing the agreement.
What happens if the debtor transforms or sells your collateral?
Automatic perfection for 20 days in whatever he transforms it into.
Must file a financing statement or it unperfects on day 21
Step 2 after attachment
Perfecting the security interest
What is the effect of perfection?
It gives a lender rights against the world and puts them on notice.
To be legally adequate what should a description include
Collateral type
Financing Statement Requirements
Typically filed with State Sec of State
Provides:
name of debtor
name of secured party
description of the collateral
Sufficiency of Name on a Financing Statement
Corp - name on statement must match the name of the debtor as recognized with the state
individual - name on driver’s license
If an ordinary search doesn’t bring up the right name, the error invalidates it
Effect of a Financing Statement
It perfects the security interest and puts the world on notice
Purchase Money Security Interest (PMSI)
A PMSI is created when
1) the secured party sells the good to the debtor on credit and retains a security interest in the goods sold (PPMSI) OR
2) the creditor loans the funds to the debtor to enable the debtor to buy specific collateral, those funds are used by the debtor to acquire the specific collateral, and the creditor takes a security interest in the collateral. (FF PMSI)
Exception to the After-Acquired Assets clause
Invalid for consumer products. They have to be products that are acquired within 10 days of the creditor providing the value
Proceeds Defined and Rule
Proceeds are whatever is received upon the sale, exchange, collection, or other disposition of collateral or proceeds and attach automatically when identifiable.
Secured Transactions OOO
1) Is there an interest? (lease or secured interest – look for remaining economic value in the thing)
2) Did it attach? (security agreement/possession/control, value to debtor, rights retained by debtor)
- proceeds (automatic if identifiable)
- after-acquired valid if specific, unless consumer goods
3) Was it perfected?
- Financing statement
- taking possession of collateral
- control
- automatic perfection (Consumer/Equipment PMSI? Moto-vehicle cert of title exception? Dealer?)
- temporary perfection
4) Competing interest?
P v P (first in time unless consumer/equipment PMSI)
P v. UP (P wins)
P v. Judgment (File or perfect
Effect of Debtor Moving to another State
State where debtor resides controls generally, but when the debtor moves the creditor has 4 months to reperfect under that state law or it becomes unperfected
Temporary Perfection
PMSIs in non-consumer goods like equipment or inventory is perfected for 20 days, if a financing statement not filed within those 20 days, the security interest is unperfected after.
Original Use Test
A debtor’s original intended use of collateral govern’s the collateral’s classification.
Perfected v. Perfected
The first in time wins.
Can you perfect via repossession?
Yes, as possession is a means of perfection
Consumer PMSIs
A consumer good PMSIs automatically and permanently perfect
Perfection for Proceeds
If a secured party has a perfected security interest in collateral, the secured party automatically has a perfected interest in any proceeds of the collateral for 20 days after the receipt of the proceeds.
After 20 days will remain perfected if
1) proceeds are identifiable cash proceeds
2) filed a financing statement in the same place as the collateral
3) you perfected within the 20 days
Does a financing statement need to mention after acquired property to perfect in it?
No, a financing statement need not mention after-acquired property to perfect a security interest in it if the description is broad enough to cover it.
Compare to security agreements where after-acquired property needs to be specifically mentioned
Which state’s law govern’s perfection?
Generally the law of state where debtor is located – their principal residence if an individual and their where registered or organized if a corp.
If unregistered, primary place of business
Exceptions to Location Perfection rules
Possessory itnerests in fixtures and timber to be cut are governed by where the collateral is located
Goods covered by certificate of title are in the state issuing the most recent certificate of title
Deposit accounts – the state in which the bank has its chief executive office
Investment property – where certifiedsecurity is located
uncertified security – state where issuer was organized
When does a security interest attach to proceeds?
When the proceeds are identifiable
Perfected Interests and Sales
When a buyer buyer or leases something with a security interest on them, the security interest stays unless
1) authorized sale
Unauthorized but the buyer is a buyer in the ordinary course or it is a consumer-to-consumer sale
Buyer in the ordinary course
1) in good faith
2) without knowledge that the sale violates the rights of another person
3) in ordinary course of business from a seller in the business of selling goods of this kind
Consumer to consumer sales
A buyer takes free of a security interest even if perfected if
1) buyer buys without knowledge of the security interest
2) for value
3) for the buyer’s personal use
4) before a financing statement cover goods has been filed
- must be consumer to consumer sale
Secured Party v. Judicial Lien Creditor
A prior perfected takes priority over a judicial lien.
If the lien creditor becomes such before interest –> prevails
Grace period of 20 days for PMSIs
Secured Party v. Possessory Statutory Lien
Statutory lien prevails
Perfected v. Gift receiver
A gift receiver doesn’t purchase for value so cannot be BIOC and so the secured interest stays attached
Buyer not in the ordinary course of business
Takes subject to perfected security interst
free from unperfected security interest unless they know of the security interest when they give value or take delivery
Self-help Repossession
Permissible as long as it is done without a breach of the peace. If you breach the peace, you lose authorization and may be liable for conversion
Breach of the peace
potential to lead to violence, such as breaking and entering
Resale of Collateral
requires a resaonable notification
1) to the debtor and sureties in the debt
2) to any other secured parties who have notified the secured party of their interests
3) secured parties who perfected by filling financing statements or making a notation on a certificate of tile
notice 10 days or more before sale
Standard for Sales
all aspects of a sale must be commercially reasonable and the creditor is liable for damages if it is notC
Contents of a Notice of Sale
Public – notice of time and place
Private – notice of time after which the sale will occur must be given
